The silver market is facing a multi-year deficit due to increased mining activity and demand for the metal. Even at current high prices, silver production is unlikely to increase in the short or medium term due to high mining costs and the time required to develop new mines.
The upcoming silver supply shortage could exacerbate the precious metal's bull market
Metals Focus, an independent metals research consultancy, believes the silver market could be facing a supply shortage due to the current state of metal production. According to recent reports, silver production has been in deficit for three years with increased demand from technology products such as power boards.
Silver production peaked in 2016, when 900 million ounces were mined. However, this year's output is expected to fall 62.8 million ounces from that figure, as demand increases. The organization notes that "growth in mine supply is likely to remain modest, with only minimal increases globally."
Metals Focus explains that this is due to the way silver is produced. Most silver mining comes from mines that focus on other metals like copper, lead and zinc. This is why rising prices do not affect silver production as much as other metals.
However, major silver mines, which account for 28% of all silver produced, are unable to increase production due to rising mining costs that exceed the current bull market. If silver prices rise enough to put miners in the green, increasing production will still depend on miners' capital allocation.
Even if these mining companies start developing new mines, the time required for this process makes it unlikely that production will increase immediately.
The agency explains:
It is unlikely that new production will be able to balance the current deficit in the short to medium term. To close that deficit, we will instead rely on recycling and demand to respond to the expected price increase.
Peter Krauth, a silver market analyst, predicted this situation in June, explaining that high demand is being met by tapping above-ground inventories from silver futures markets.
What do you think about the state of the silver mining industry? Let us know in the comments below.
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